What is an Income Tax Payable?

An income tax payable is an entry on accounting disclosures indicating the amount of money due for income tax within the next year. Many companies establish an income tax payable account for the purpose of setting aside funds for paying income taxes. The income tax payable is considered an outstanding financial liability. Individuals are also required to keep track of their income for the purpose of filling out tax declarations and paying their income taxes appropriately.

Determination of a company's income tax payable is based on revenues for a given tax year, with an adjustment for certain types of expenses and credits. When this number is calculated, it is used to determine a company's tax bracket and the total percentage owed in tax. This becomes the income tax payable, and is due within a set period of time.

Companies commonly pay income taxes periodically, typically every quarter or month. By paying taxes over the course of a year, companies can distribute the expense. The pre-paid taxes will be applied to the total income tax payable to determine whether the company still owes funds, or if the government needs to refund some of the taxes paid. Setting aside funds in a specific account will also allow companies to save up over the course of a year so they are prepared for the date when the tax bill becomes due.

When tax bills are sent out, they indicate when the funds are due and how they can be paid. It may be possible to receive an extension if a company cannot afford its income tax payable. Tax agencies tend to be more inclined to offer extensions in cases where companies have been making regular tax payments and can demonstrate a payment plan for repaying their taxes without simultaneously endangering their ability to pay the next year's taxes.

There may be cases where there is a dispute between the company and the government about the total due for taxes. If the two cannot agree on an amount, an audit may be conducted to examine a company's accounts and bookkeeping methods. Accountants and tax attorneys are typically involved in this process. They confirm that the audit is conducted fairly and within the confines of the law and assist with the gathering and submission of information to tax authorities. Such disputes can usually be worked out amicably so the company can settle its tax bill and resume normal business activities.